Market Share – A Key to Profitability
The concepts of unit market share, revenue market share, market penetration, relative market share, and market concentration are essential to businesses in all industries. You may have noticed that all of these concepts include the word “market” in them. This is because the definition of market concerning market share can be applied in several different contexts. These contexts include goods, services, segments, regions, channels, units, dollars, and more. The way in which you use the definition of market share is all relative to the market you are analyzing, and it is vital to ensure you are comparing things that can reasonably be compared, so you don’t end up with disingenuous information.
If you are looking to calculate a company’s market share, you need first to determine the time period in which you want to study. Then, you need to calculate the total sales made by that company and the total shares of the industry. For example, say a company sold $100 million in blenders in the U.S. last year, and the total amount of blenders sold in the U.S. was $200 million, the company’s U.S. market share for blenders would be 50%.
MARKET SHARE = $100,000,000 / $200,000,000 = 0.5 or 50%
In marketing, market share is an important metric that is used to measure the sales of a brand or product relative to the overall size of the market. If you are trying to calculate unit market share, you are dividing the unit sales by the total market unit sales. If you are trying to calculate the revenue market share, you divide the sales revenue by the total market sales revenue.
UNIT MARKET SHARE = Unit Sales / Total Market Unit Sales
REVENUE MARKET SHARE = Sales Revenue / Total Market Sales Revenue
For example, the company I currently work for, American Caribbean Real Estate, had a closed sales volume revenue in 2019 of $124,000,000. The total market share sales revenue in the area in which they service, The Florida Keys, was $421,400,000. Therefore, American Caribbean Real Estate represented 29% of the real estate market share in the Florida Keys.
Market Share= $124,000,000 / $421,400,000 = 0.294 or 29%
We can use the information we calculated above to make marketing decisions to grow the business. Let’s say American Caribbean Real Estate has a marketing goal to increase the closed real estate sales volume by $25,000,000 in a fiscal year to secure their place as the number one luxury brokerage in the Florida Keys. Assuming the real estate market remains constant in 2020, to meet their overall goal, American Caribbean would need to increase their market share by 5% for a total of 35%. With this knowledge, the American Caribbean Real Estate marketing team can generate effective marketing strategies to meet their goal strictly from understanding how much they need to grow their market share to achieve their goals.
A company’s market share is the percentage it controls the total market for its product or services. Understanding the market share in which your company controls is significant to growing and configuring how to implement new marketing and business practices to acquire more market share and becoming more profitable. If you are interested in learning more about market share and how it affects your business and industry, contact me today to schedule a consultation.